The mere fact of ownership of two units by itself is not sufficient to satisfy the test of functional integrality; the test of functional integrality would be whether the second unit would survive in the absence of the first unit or when the first unit was closed whether the second unit would continue to do its business activity.

Headnote:
EMPLOYEES PROVIDENT FUND AND MISCELLANEOUS PROVISIONS ACT, 1952 - SECTION 2-A, 16(1)(D) - ESTABLISHMENT - INFANCY BENEFIT - FUNCTIONAL INTEGRALITY - OWNERSHIP - SUPERVISION - FINANCE - MANAGEMENT CONTROL - INTERCONNECTION - SECTION 2-A OF THE ACT - DEPARTMENT/BRANCH OF M/S. KADAMBA TRANSPORT LIMITED - NEW ESTABLISHMENT ENTITLED TO INFANCY PERIOD BENEFIT.
Fact of the Case:

The petitioner, M/s. Kadamba Sub-Urban Transport Corporation Limited, was incorporated on 11-7-1988 with a share capital of rupees one crore. The petitioner company was started with a view to provide city buses/Sub-Urban services by setting up the petitioner company. The petitioner company purchased some old buses of KTC for a total sum of Rs. 19,41,000/- out of which a sum of Rs. 15,00,000/- was treated as share capital of KTC in the petitioner company by allotting 15,000 shares of Rs. 1,000/- each. The balance amount of Rs. 4,41,000/- was treated as loan from KTC to the petitioner company which was payable with 12% interest per annum. Subsequently, four more buses were sold by KTC to the petitioner for a total consideration of Rs. 4,75,000/- in respect of which also additional 9000 shares of Rs. 1,000/- each were allotted to KTC. Thus, KTC holds 24,000 shares of the petitioner company. Initially some expertise was taken from KTC to petitioner company on honorary basis and services of Assistant Depot Manager and Accountant of KTC were availed of by the petitioner company on deputation and they were paid by the petitioner company. The petitioner company availed of the garage facilities of KTC but the petitioner company paid for the services rendered by KTC in the garage as well as supply of spares at the Kadamba Bus Terminus, Panaji while other facilities like water, electricity and telephone were provided by KTC to the petitioner company free of cost. However, the Board of Directors of KTC and petitioner company were different; the shareholders were different; the sphere of operation was different; the share capital was different and that the employees including drivers and clerical staff were directly recruited by the petitioner company and were not taken from KTC.
Finding of the Court:

The court held that the petitioner company cannot be covered under section 2-A of the said Act so as to treat it as Department/Branch of KTC but, on the contrary, in our opinion, the petitioner company would fall under section 16(1)(d) of the said Act and, as such, it would be entitled to infancy benefit of three years.
Issues: Whether the petitioner M/s. Kadamba Sub-Urban Transport Corporation Limited is a Department/Branch of M/s. Kadamba Transport Limited so as to fall with in the scope and ambit of section 2-A of the Employees Provident Fund and Mics. Provisions Act, 1952 or that it is a new establishment entitled to infancy period benefit in terms of section 16(1)(d) of the said Act.
Ratio Decidendi: The court held that the petitioner company is a new establishment entitled to infancy period benefit under section 16(1)(d) of the Act and not a Department/Branch of M/s. Kadamba Transport Limited covered under section 2-A of the Act. The court found that there was no functional integrality between the two companies, the petitioner company was not dependent on KTC for its survival, and the two companies had separate Boards of Directors, shareholders, share capital, and profit and loss accounts.
Final Decision: The court quashed and set aside the impugned order dated 29th January, 1993, and made the rule absolute in terms of prayer Clauses (a) and (b).

JUDGMENT - BATTA R.K., J.:---The short question which is required to be decided in this petition is whether the petitioner M/s. Kadamba Sub-Urban Transport Corporation Limited is a Department/Branch of M/s. Kadamba Transport Limited so as to fall with in the scope and ambit of section 2-A of the Employees Provident Fund and Mics. Provisions Act, 1952 (hereinafter called the said Act) or that it is a new establishment entitled to infancy period benefit in terms of section 16(1)(d) of the said Act. We shall first advert to the relevant facts which are necessary for determination of the issue in question.

2. The petitioner's case is that M/s. Kadamba Transport Limited (hereinafter referred to as KTC for short) a Government Company was incorporated under the Companies Act, 1956 on 15-10-1980 and this company has been operating its buses on long routes within Goa and on other inter-State routes since the date of its incorporation. The Government noticed that the commuters within a radius of 10 kms. from major towns in Goa were finding it difficult to reach their destination to and fro on account of shortage of city services and taking into consideration the said difficulties, the Government took a policy decision to provide city buses/Sub-Urban services by setting up the petitioner company which was incorporated on 11-7-1988. The petitioner company was started with a share capital of rupees one crore. Some of the old buses of KTC were purchased by the petitioner company for a total sum of Rs. 19,41,000/- out of which a sum of Rs. 15,00,000/- was treated as share capital of KTC in the petitioner company by allotting 15,000 shares of Rs. 1,000/- each. The balance amount of Rs. 4,41,000/- was treated as loan from KTC to the petitioner company which was payable with 12% interest per annum. Subsequently, four more buses were sold by KTC to the petitioner for a total consideration of Rs. 4,75,000/- in respect of which also additional 9000 shares of Rs. 1,000/- each were allotted to KTC. Thus, KTC holds 24,000 shares of the petitioner company. Initially some expertise was taken from KTC to petitioner company on honorary basis and services of Assistant Depot Manager and Accountant of KTC were availed of by the petitioner company on deputation and they were paid by the petitioner company. The petitioner company availed of the garage facilities of KTC but the petitioner company paid for the services rendered by KTC in the garage as well as supply of spares at the Kadamba Bus Terminus, Panaji while other facilities like water, electricity and telephone were provided by KTC to the petitioner company free of cost. However, the Board of Directors of KTC and petitioner company were different; the shareholders were different; the sphere of operation was different; the share capital was different and that the employees including drivers and clerical staff were directly recruited by the petitioner company and were not taken from KTC.

3. The respondent held inspections of the premises of the petitioner company and pursuant to such inspections, issued show cause notice dated 28-1-1992 which is at Exh. P-3 on record in which it was stated that the petitioner had failed to pay the Provident Fund contribution from November 1988 to October, 1991 amounting to Rs. 5,44, 126/- and further claimed that administrative charges for the aforesaid period amounting to Rs. 13,144/- and Rs. 137/- had not been paid. For the said breaches, the petitioner was directed to show cause within seven days as to why the amount of Provident Fund, family pension fund, deposit link insurance fund and administrative charges should not be recovered from the petitioner as arrears of land revenue under section 8 of the said Act. It appears that the respondent had conducted an inquiry under section 7-A of the said Act and, on the basis of Provident Fund Inspector's report the said notice in question was issued.

4. The petitioner filed reply to show cause notice and after hearing the part

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1998 Supreme(Bom) 683

Cases Referred (5)

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